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Consensus Revenue Estimating Conference Held

Jan 11, 2018

Today, the biannual Consensus Revenue Estimating Conference was held in Lansing. The conference included members of the House and Senate Appropriations Committees, the directors of the House and Senate Fiscal Agencies, the State Treasurer, Nick Khouri, and the State Budget Director, Al Pscholka.  After hearing testimony from the Research Seminar on Quantitative Economics at the University of Michigan, IHS Markit, and senior economists from the House and Senate Fiscal Agencies and Department of Treasury, the principals came to an agreement on economic and revenue figures for the remaining 2018 Fiscal Year and the upcoming 2019 – 2020 Fiscal Years. 

Through the upcoming Fiscal Years, both the General Fund and the School Aid Fund should see revenue growth, but on a small scale.  In the 2019 Fiscal Year, General Fund General Purpose revenue is projected to be $10.3 billion, a decrease from the May 2017 estimate and the School Aid Fund revenue is estimated to be $13.5 billion, an increase of $134 million from earlier projections. Given the various economic factors presented today, the economic recovery period for Michigan is extended to eleven-years. Additionally, by 2020, Michigan will have replenished 84% of jobs lost and will return the state to job levels of the 3rd quarter in 2001. Another positive note is that the Michigan economy has diversified over the last twenty-years, making it easier to grow jobs and not have those numbers tied to vehicles sales by the Detroit three.

Additional highlights, include:

National Forecast:

  • The recent federal tax reform is causing a lot of uncertainty in the forecasts.
  • The positive impact of the federal tax bill is front loaded. While it may be economically good in the short term, the economic effect of the growing deficit could cause problems.
  • Payroll job gains will taper off through 2020.
  • Continued improvement in housing starts, home prices are rising as demand tightens.
  • Consumer confidence is high.
  • States are losing revenue due to the ever-increasing e-commerce market and many states are waiting on court decisions regarding interstate commerce as it relates to taxing online sales.

Michigan Forecast:

  • Vehicle sales are flat over the next few years, but remain a strong number.
  • The pace of job growth in manufacturing slows and the professional and business sector job growth remains flat.
  • The unemployment rate is projected to slightly decline through 2020, where it is projected to be 4.1%.
  • Retail sales are trending up, helping sales tax collections.
  • In 2017 there was a jump in consumer credit card debt, unsure if this is due to better consumer confidence or due to low wage growth causing a necessity to use a credit card.
  • While School Aid Fund revenue is increasing, the numbers have not yet recovered from the recession.
  • Through 2020 there will be no pay-outs from the Budget Stabilization and there is forecasted to be pay-ins during the 2019 and 2020 Fiscal Years.

Risks to the Forecast:

  • The effect of the US pulling out of NAFTA
  • Uncertainty of the tax bill, because it was passed so quickly there will probably be unintended consequences.
  • Abnormal weather.
  • Uncertainty about federal monetary and fiscal policies.
  • Destabilization in China.
  • Uncertainty surrounding situation with North Korea and the implications to the US economy.
  • The Corporate Income Tax and Michigan Business Tax credit uncertainty remains a risk to Michigan’s economic outlook.
  • Consumer response to higher interest rates and the effect on housing.

The administration and the legislature will use the information presented today and the agreed upon revenue numbers to craft their budgets for the upcoming Fiscal Year.  Governor Rick Snyder will present his executive recommendations in the coming weeks and the legislature will begin to introduce their budget recommendations shortly thereafter. In May the parties will hold another Consensus Revenue Estimating Conference to update and change numbers, if necessary, due to the latest economic data available.

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